Appendices

Document Sample
Appendices Powered By Docstoc
					                              Appendices


  I. Freedoms of Air
  II. Blue Sky: Canada's New International Air Policy
 III. Open Skies Partners of the United States
 IV. Open Skies Agreement between Canada and the United States
 V. Canada Open Skies Agreements
 VI. Canada’s Liberal Bilaterals (Open Capacity)
VII. Bilateral Agreements with Limited Price Control
VIII. Canada’s Restrictive Bilaterals
 IX. Formulation of Competitive Equilibrium Outcomes under Air Bilateral
     Liberalization
 X. The United States Current Model Open Skies Agreement Text




                                        95
                                       Appendix I

                                 FREEDOMS OF THE AIR

First Freedom of the Air - the right or privilege, in respect of scheduled international air
services, granted by one State to another State or States to fly across its territory without
landing (also known as a First Freedom Right).

Second Freedom of the Air - the right or privilege, in respect of scheduled international
air services, granted by one State to another State or States to land in its territory for non-
traffic purposes (also known as a Second Freedom Right).

Third Freedom of The Air - the right or privilege, in respect of scheduled international air
services, granted by one State to another State to put down, in the territory of the first
State, traffic coming from the home State of the carrier (also known as a Third Freedom
Right).

Fourth Freedom of The Air - the right or privilege, in respect of scheduled international
air services, granted by one State to another State to take on, in the territory of the first
State, traffic destined for the home State of the carrier (also known as a Fourth Freedom
Right).

Fifth Freedom of The Air - the right or privilege, in respect of scheduled international air
services, granted by one State to another State to put down and to take on, in the territory
of the first State, traffic coming from or destined to a third State (also known as a Fifth
Freedom Right).

ICAO characterizes all "freedoms" beyond the Fifth as "so-called" because only the first
five "freedoms" have been officially recognized as such by international treaty.

Sixth Freedom of The Air - the right or privilege, in respect of scheduled international air
services, of transporting, via the home State of the carrier, traffic moving between two
other States (also known as a Sixth Freedom Right). The so-called Sixth Freedom of the
Air, unlike the first five freedoms, is not incorporated as such into any widely recognized
air service agreements such as the "Five Freedoms Agreement".

Seventh Freedom of The Air - the right or privilege, in respect of scheduled international
air services, granted by one State to another State, of transporting traffic between the
territory of the granting State and any third State with no requirement to include on such
operation any point in the territory of the recipient State, i.e the service need not connect
to or be an extension of any service to/from the home State of the carrier.

Eighth Freedom of The Air - the right or privilege, in respect of scheduled international
air services, of transporting cabotage traffic between two points in the territory of the
granting State on a service which originates or terminates in the home country of the
foreign carrier or (in connection with the so-called Seventh Freedom of the Air) outside the



                                              96
territory of the granting State (also known as a Eighth Freedom Right or "consecutive
cabotage").

Ninth Freedom of The Air - the right or privilege of transporting cabotage traffic of the
granting State on a service performed entirely within the territory of the granting State
(also known as a Ninth Freedom Right or "stand alone" cabotage).

Source: Manual on the Regulation of International Air Transport (Doc 9626, Part 4)




                                             97
                                      Appendix II

             Blue Sky: Canada's New International Air Policy
The following policy will apply to Canada’s approach to bilateral air transportation
negotiations for scheduled passenger and all-cargo services.[1]

Policy Objectives and Principles

Canada’s new international air policy approach will be guided by the following
objectives and principles:

Objectives

   •   Provide a framework that encourages competition and the development of new
       and expanded international air services to benefit travellers, shippers, and the
       tourism and business sectors.

   •   Provide opportunities for Canadian airlines to grow and compete successfully in
       a more liberalized global environment.

   •   Enable airports to market themselves in a manner that is unhindered by bilateral
       constraints to the greatest extent possible.

   •   Support and facilitate Canada’s international trade objectives.

   •   Support a safe, secure, efficient, economically healthy and viable Canadian air
       transportation industry.

Principles

   •   Recognize that air transportation is a direct contributor to a dynamic economy
       and is a leading trade and tourism facilitator.

   •   Market forces should determine the price, quality, frequency and range of air
       services options.

   •   Canadian carriers should have the opportunity to compete in international
       markets on a reasonably level playing field.

   •   Air liberalization initiatives will continue to be guided by safety and security
       considerations.

In addition, Transport Canada recognizes that many of the expected benefits of air
transport liberalization efforts are dependent on the efficient flow of passenger and cargo
traffic within airports. Consequently, Transport Canada will continue to collaborate with
other Canadian government departments, airport authorities, airlines and, where



                                             98
applicable, Canada’s bilateral partners to develop and promote measures that facilitate
the efficient, safe and secure flow of international passenger and cargo traffic.

Policy Approach for Air Transportation Negotiations

Canada will proactively pursue opportunities to negotiate more liberalized agreements
for international scheduled air transportation that will provide maximum opportunity for
passenger and all-cargo services to be added according to market forces.

As a primary objective, Canada will seek to negotiate reciprocal “Open Skies”-type
agreements, similar to the one negotiated with the U.S. in November 2005, where it is
deemed to be in Canada’s overall interest.

In essence, an “Open Skies”-type agreement would cover the following elements for
scheduled passenger and all-cargo services:

   •   Open bilateral markets/access (third and fourth freedom rights);

   •   No limit on the number of airlines permitted to operate;

   •   No limits on the permitted frequency of service or aircraft type;

   •   Market-based tariff/pricing regime for bilateral and third-country services;

   •   Open and flexible regime for the operation of code-sharing services;

   •   Unrestricted services to and from third-countries (fifth and sixth freedom rights);
       and

   •   Rights for stand-alone all-cargo operations (seventh freedom rights).

Under no circumstances will the policy approach include cabotage rights – the right for a
foreign airline to carry domestic traffic between points in Canada.

In determining its negotiating priorities, the Government will consult both airlines and
airports and will take the following elements into consideration (in no particular order):

   •   Canadian airline and airport priorities and interests;

   •   Likelihood and extent of new Canadian and foreign carrier services, giving
       preference where early startup of air services is planned;

   •   Size and maturity of the air transportation markets and potential for future growth;

   •   Foreign government requests;

   •   Canada’s international trade objectives;




                                            99
   •   Safety and security issues;

   •   Foreign relations; and

   •   Bilateral irritants and disputes.

The Government will also consult more broadly prior to undertaking major air
liberalization initiatives.

Recognizing that there may be situations where other countries will not be interested in
negotiating an Open Skies-type arrangement with Canada, a scaled-down exchange of
rights will be considered that will seek further liberalization without compromising
Canada’s ability to secure an Open Skies-type agreement in the future. In all such
cases, however, Canada will seek to secure as much flexibility for all-cargo
services as possible.

In other limited situations, the Government may determine that it would not be in
Canada’s best interests to negotiate an Open Skies-type agreement.
Considerations that could influence Canada’s approach to bilateral air
negotiations include:

   •   the ability of Canadian airlines to operate services is severely limited by
       discriminatory airport access and/or facilitation issues;

   •   the “doing business” environment (e.g., transfer of funds, provisions on double
       taxation) presents major obstacles to Canadian airlines’ commercial operations;

   •   the foreign carrier(s) appears not to be behaving in accordance with rational
       business principles or is protected from normal market disciplines, resulting in a
       markedly unbalanced playing field vis-à-vis Canadian airlines; and

   •   the foreign carrier(s) would be reasonably expected to offer a level of service to
       such an extent that competition in some markets/routes would be significantly
       reduced or effectively eliminated – resulting in a net loss for Canada.

However, in these cases, if a particular market is determined to be a negotiating priority
Canada would consider negotiating an arrangement that would permit incremental
liberalization and possibly provide scope for future introduction and/or expansion of air
services.




                                           100
                                           Appendix III

                    Open Skies Partners of the United States
                                                                        MALIAT
    Partner          Application    Date Concluded    All-cargo 7ths   Membership
1.Netherlands         In Force         10/14/92             --             --
2.Belgium            Provisional         34702              --             --
3.Finland             In Force          3/24/95             --             --
4.Denmark             In Force          4/26/95             --             --
5.Norway              In Force          4/26/95             --             --
6.Sweden              In Force          4/26/95             --             --
7.Luxembourg          In Force           34856             Yes             --
8.Austria             In Force          6/14/95             --             --
9.Iceland             In Force          6/14/95            Yes             --
10.Switzerland        In Force          6/15/95             --             --
11.Czech Republic     In Force           34923             Yes             --
12.Germany           Provisional        2/29/96            Yes             --
13.Jordan             In Force           35349              --             --
14.Singapore          In Force          1/22/97            Yes            Yes
15.Taiwan             In Force          2/28/97             --             --
16.Costa Rica         In Force           35647              --             --
17.El Salvador        In Force           35647             Yes             --
18.Guatemala          In Force           35647             Yes             --
19.Honduras          Provisional         35647             Yes             --
20. Nicaragua         In Force           35647         Chart Only          --
21. Panama            In Force           35647             Yes             --
22. New Zealand       In Force          5/29/97            Yes            Yes
23. Brunei            In Force          6/20/97            Yes            Yes
24. Malaysia          In Force          6/21/97            Yes             --


                                                101
25. Aruba                  In Force      9/18/97         Yes    --
26. Chile                  In Force     10/28/97         Yes   Yes
27. Uzbekistan             In Force      2/27/98         Yes    --
28. Korea                  In Force      4/23/98          --    --
29. Peru                   In Force       36074          Yes    --
30. Netherland Antilles    In Force      7/14/98         Yes    --
31. *Romania               In Force      7/15/98          --    --
32. *Italy                   C&R          36110           --    --
33. U.A.E.                 In Force      4/13/99         Yes    --
34. Pakistan               In Force      4/29/99         Yes    --
35. Bahrain                In Force      5/24/99         Yes    --
36. Tanzania              Provisional     36230          Yes    --
37. *Portugal              In Force     12/22/99         Yes    --
38. *Slovak Republic       In Force       36708          Yes    --
39. Namibia                  C&R          36618           --    --
40. Burkina Faso           In Force       36771          Yes    --
41. Ghana                  In Force      3/16/00         Yes    --
42. Turkey                 In Force      3/22/00          --    --
43. Gambia                 In Force       36561          Yes    --
44. Nigeria               Provisional    8/26/00         Yes    --
45. Morocco                In Force       36656          Yes    --
46. Rwanda                   N/A          36840          Yes    --
47. *Malta                 In Force       36870          Yes    --
48. Benin                    N/A        11/28/00         Yes    --
49. Senegal                  C&R        12/15/00         Yes    --
50. *Poland                In Force      5/31/01         Yes    --
51. Oman                     C&R         9/16/01         Yes    --
52. Qatar                 Provisional     36960          Yes    --
53. *France                In Force     10/19/01         Yes    --


                                                   102
54. Sri Lanka       In Force       36902           --    --
55. Uganda            C&R          37352          Yes    --
56. Cape Verde      In Force      6/21/02         Yes    --
57. Samoa           In Force       37353          Yes   Yes
58. Jamaica           C&R        10/30/02          --    --
59. Tonga           In Force      9/19/03         Yes   Yes
60. Albania         In Force      9/24/03         Yes    --
61. Madagascar     Provisional     38263          Yes    --
62. Gabon           In Force      5/26/04         Yes    --
63. Indonesia         C&R         7/26/04         Yes    --
64. Uruguay        Provisional   10/20/04         Yes    --
65. India           In Force      1/15/05         Yes    --
66. Paraguay        In Force       38388          Yes    --
67. Maldives        In Force       38477          Yes    --
68. Ethiopia       Provisional    5/17/05         Yes    --
69. Thailand        In Force      9/19/05         Yes    --
70. Mali            In Force     10/17/05         Yes    --
71. Canada          In Force       39419          Yes    --
72. Bosnia and
Herzegovina         In Force     11/22/05         Yes    --
73. Cameroon        In Force     2/16/06          Yes    --
74. Chad           Provisional    5/31/06         Yes    --
75. Cook Islands    In Force     2/28/06          Yes   Yes
76. Kuwait          In Force      5/27/07         Yes    --
77. Liberia         In Force     2/15/07          Yes    --
                   Provisional
78. *Bulgaria        3/30/08     4/30/07          Yes   --
                   Provisional
79. *Cyprus          3/30/08     4/30/07          Yes   --
80. *Estonia       Provisional   4/30/07          Yes   --


                                            103
                        3/30/08
                      Provisional
81. *Greece             3/30/08     4/30/07         Yes   --
                      Provisional
82. *Hungary            3/30/08     4/30/07         Yes   --
                      Provisional
83. *Ireland            3/30/08     4/30/07         Yes   --
                      Provisional
84. *Latvia             3/30/08     4/30/07         Yes   --
                      Provisional
85. *Lithuania          3/30/08     4/30/07         Yes   --
                      Provisional
86. *Slovenia           3/30/08     4/30/07         Yes   --
                      Provisional
87. *Spain              3/30/08     4/30/07         Yes   --
                      Provisional
88. *United Kingdom     3/30/08     4/30/07         Yes   --
89. Georgia               N/A       6/21/07         Yes   --
90. Australia            C&R        2/14/08         Yes   --
91. Croatia               N/A       3/13/08         Yes   --
92. Kenya              In Force     6/18/08         Yes   --




                                              104
                                                        Appendix IV

                         Open Skies Agreement between Canada and the United States

1. Date of Agreement

Legal Title: Air Transport Agreement between the Government of Canada and the Government of the United States of America

March 12, 2007 Agreement signed and in force

Legal Title:     Preclearance Agreement

January 18, 2001 Signed

May 2, 2003       In force

2. Other Instruments

June 30, 1995           NAX0047- Canadian government confirmation of grandfathered cargo coterminal right (UPS)
May 25 & June 12, 2000 Exchange of notes on designation
June 12, 2000           Exchange of notes amending Article 10 (Third country carrier code-sharing)

3. Characterization of Bilateral Agreement

The Canada - USA Agreement is an open skies type agreement. Any number of airlines may be designated for service pursuant to the
Agreement.

4. Routes and Associated Rights

--Scheduled Services



                                                              105
   •   With effect from March 12, 2007, United States and Canadian air carriers are permitted to operate transborder scheduled
       services between any point or points in Canada and any point or points in the United States.
   •   In addition to/ in conjunction with the exercise of traffic rights granted in the agreement, carriers may serve points in third
       countries with fifth freedom rights.
   •   All cargo services may be operated between any point in either territory and any point outside that territory (7th freedom).
   •   The carriage of own stopover traffic( passengers) between points in the territory of the other Party is permitted.
   •   Code sharing with carriers of either Party and carriers of third countries is permitted, subject to normal regulatory requirements.

--Charter Services

   •   Charter services are included in the Air Transport Agreement. Pursuant to Annex III charters are subject to the charter
       rules/regulations of the country of origin of the charter flight. Charter flights may be one way, round trip or circle trip; may
       include stopovers at a point(s) within or outside the territories of either Party, and may include transportation beyond to third
       countries.
   •   Large aircraft All-cargo charters by carriers of one Party are permitted to serve any point in the territory of the other Party and
       any point(s) outside that territory (7th freedom).

--Stopover Provisions

   •   Under the Agreement designated airlines of Canada and the United States may operate scheduled or charter flights between
       any point or points in the United States and any point or points in Canada and may provide stopovers at points in either
       territory.
   •   In the case of charters there is no requirement for the aircraft to remain with the charter group at the point of stopover or for the
       same aircraft to be used for the entire journey. There is no limitation on the number of points at which such stopovers may be
       made.
   •   For example: a United States airline may transport passengers from the United States to a first point of arrival in Canada,
       return to that Canadian point at a later date and transport the same group to another point in Canada for another stopover,
       provided that the entire transportation of the group is under a single contract with that airline for transportation which
       originates in, or is finally destined for a point in the United States.




                                                                   106
                                   Appendix V

                     Canada Open Skies Agreements

                                         Date       All-cargo
  Partner         Application          Concluded       7ths     Cargo Only

 Barbados       Still to be Ratified   03/04/2008

New Zealand     Still to be Ratified   09/07/2007     Yes

   Iceland         Provisional         7/18/2007      Yes

   Ireland         Provisional         4/30/2007      Yes
United States        In Force          03/12/2007     Yes
   United
  Kingdom          Provisional         4/21/2006      Yes




                                        107
                                          Appendix VI

               Canada’s Liberal Bilaterals with Open Capacity

Aruba

                                                                         Agreement
Date Of Agreement                           January 24, 2001             signed
Characterization of Bilateral                                                         Air
Agreement                                   Designation                  Multiple     Canada
                                                                                      Westjet
                                                                         Double Disapproval
                                            Tariffs
                                                                         Open Capacity
                                            Capacity
Confidential Item(s)                        Routes and associated rights

Route Information (Operated in
2004)                                       Access to British            No
                                            Columbia/YVR



Chile

                                December 4,           Provisionally in
Date of Agreement               2003                  force
                                September 27,
                                2005                  Entry into force
Characterization of
Bilateral Agreement             Designation           Multiple                Air Canada
                                                                              Lan Airlines
                                                                              Double
                                Tariffs                                       disapproval
                                Capacity                                      Open Capacity
Route                           Access to British                             Any point or
Information                     Columbia/YVR          Yes                     points in Canada




                                              108
Cuba

                                February 12,
Date of Agreement               1998                 Provisionally in force
                                November 27,
                                2000                 Definitively in force
Characterization of
Bilateral Agreement             Designation          Multiple                 Air Canada
                                                                              Air Transat
                                                                              Cubana
                                                                              Double
                                Tariffs                                       disapproval
                                                                              Free
                                Capacity                                      Determination
Route                           Access to British
Information                     Columbia/YVR         No


Italy


Date of Agreement                    May 16, 2002          Agreement signed ad referendum
Characterization of Bilateral
Agreement                            Designation          Multiple           Air Canada
                                                                             Air Transat
                                                                             Skyservice
                                                                             Zoom Airlines Inc
                                                                             Alitalia and Air
                                                                             Italy SpA

                                     Tariffs              Double disapproval

                                     Capacity             Free determination
Confidential Item(s)                 Routes and associated rights
                                     Access to
Route Information                    British
(operated in 2007)                   Columbia/YVR No access until 2007




                                               109
Portugal



Date of Agreement                June 8, 2006        Provisionally in force
Characterization of Bilateral
Agreement                        Designation         Multiple       TAP Air Portugal
                                                                    Air Transat
                                                                    Air Canada
                                                                    Skyservice
                                 Tariffs                            Double disapproval

                                 Capacity            Free determination
Route Information (operated in   Access to British
2007)                            Columbia/YVR        No




                                           110
    Spain



    Date of Agreement                             September15, 1988        Provisionally in force


                                                  August15, 1991               Definitively in force
    Characterization of Bilateral Agreement       Designation              Multiple                    Air Canada
                                                                                                       Air Transat
                                                                                                       Lberia
                                                                                                       SPANAIR
                                                                                                       Air Comet S.A
                                                                                                       Double
                                                  Tariffs                                              disapproval
                                                  Capacity                                             Free determination
    Confidential Item(s)                          Routes and associated rights
                                                                                                            Access is
                                                                                                            limited to the
                                                                                                            following
                                                                                                            routes
                                                                                                              • Canada-
                                                                                                                 London-
                                                                                                                 Palma De
                                                                                                                 Mallorca
                                                                                                              • Canada2-
                                                                                                                 Frankfurt
                                                                                                                 -Palma
                                                                                                                 De
                                                                                                                 Mallorca
                                                                                                              • Canada2-
                                                                                                                 Frankfurt
                                                                                                                 -Madrid
                                                                                                              • Canada-
                                                                                                                 Frankfurt
                                                                                                                 -
                                                                                                                 Barcelon
                                                                                                                 a
    Route                                                                                                     • Canada1-
    Information(Operated      in                  Access to British                                              Frankfurt
    2004)                                         Columbia/YVR             Yes                                   -Madrid




1
    Service from Vancouver was operated on a codeshare basis with Lufthansa.


                                                        111
Finland

                                February 21,
Date of Agreement               1992            In force
Characterization of Bilateral
Agreement                       Designation     Multiple Finnair
                                                           Air Canada
                                Tariffs
                                                Double disapproval

                                                Free determination on third and
                                Capacity        fourth freedom services, pre-
                                                determination on fifth freedom
                                                services. Codeshare: no limitation
                                                on capacity
                                Access to
Route                           British
Information                     Columbia/YVR               No




                                          112
                                Appendix VII

              Bilateral Agreements with Limited Price Control


Algeria

                                                 Applied provisionally
Date of Agreement                July 05 ,2006
Characterization of Bilateral                                  Air Algerie
Agreement                       Designation      Multiple
                                                               Air Canada
                                                               Code-sharing

                                Tariffs          Double disapproval

                                Capacity         Predetermination
Confidential Item(s)            Routes and associated rights
                                Access to
Route Information (Operated     British
in 2004)                        Columbia/YVR     No

Austria

                                September
Date of Agreement               1,1993           Entered into force
Characterization of Bilateral                               Air
Agreement                       Designation      Multiple Transat
                                                            Austrian Airlines(OS)
                                                            Air
                                                            Canada

                                Tariffs          Double disapproval

                                Capacity         Predetermination
Confidential Item(s)            Routes and associated rights
                                Access to
Route Information (Operated     British
in 2004)                        Columbia/YVR     No




                                     113
Belgium

Date of Agreement                      May 13,1986
Characterization of Bilateral Agreement Designation                     Multiple               Air C
                                                                                               City B



                                       Tariffs                          Double disapproval
                                       Capacity
                                                                        Pre-determination

                                                                        Unlimited capacity entitlem
                                                                        code-share services.5th free

                                                                        Code-share services.
Route Information (Operated in 2004)   Access to British Columbia/YVR No

Croatia


Date of Agreement                      December 1,2006                             Applied provisio
Characterization of Bilateral Agreement Designation                                Multiple    Air C
                                                                                               Skyse

                                       Tariffs                                     Double disappro

                                       Capacity                                    Pre-determinatio
Confidential Item(s)                   Routes and associated rights
Route Information (Operated in 2004)   Access to British Columbia/YVR              No




                                       114
France

Date of Agreement               June 15,1976              Provisionally in force
                                January 8,1977            Definitively in force
Characterization of Bilateral
Agreement                       Designation               Multiple     Air Canada
                                                                       Air Transat
                                                                       Air France

                                Tariffs                   Double disapproval

                                Capacity                  Pre-determination
Route Information (Operated     Access to British
in 2004)                        Columbia/YVR              No

Greece

Date of Agreement               August 20,1984            Provisionally in force
                                June 24,1987              Definitely in force
Characterization of Bilateral
Agreement                       Designation               Dual       Air Canada
                                                                     Air Transat
                                                                     Olympic
                                                                     Airways

                                Tariffs                   Double disapproval

                                Capacity                  Pre-determination
Confidential Item(s)            Routes and associated rights
Route Information (Operated     Access to British
in 2004)                        Columbia/YVR             Yes




                                          115
Guyana

Date of Agreement                            May 30,2005         In force
Characterization of Bilateral
Agreement                                    Designation         Multiple   Air Canada
                                                                            TravelSpan
                                                                            GT inc
                                                                            E-Jet Inc

                                             Tariffs             Double disapproval

                                             Capacity            Pre-determination
                                             Access to
                                             British
Route Information (Operated in 2004)         Columbia/YVR        No

Jordan

                                                           Provisionally in force
Date of Agreement                      June 6,2007
Characterization of Bilateral
Agreement                              Designation         Multiple     Air Canada
                                                                        Royal Jordanian

                                       Tariffs             Double     disapproval

                                       Capacity            Pre-determination
Confidential Item(s)                   Routes and associated rights
Route Information (Operated in         Access to British
2004)                                  Columbia/YVR        Yes




                                            116
Kuwait

                                                     Provisionally in force
Date of Agreement                May 8,2007
Characterization of Bilateral
Agreement                        Designation         Multiple    Air Canada
                                                                 Kuwait Airways
                                                                 Corporation
                                                                 Jazeera Airways
                                                                 Company

                                 Tariffs             Dual disapproval

                                 Capacity            Pre-determination
Confidential Item(s)             Routes and associated rights
Route Information (Operated in   Access to British
2004)                            Columbia/YVR        No

Lebanon

                                                     Entry into force
Date of Agreement                August 26,2002
Characterization of Bilateral
Agreement                        Designation         Multiple    Air Canada
                                                                 Middle East
                                                                 Airlines

                                 Tariffs             Double disapproval

                                 Capacity            Pre-determination
Route Information (Operated in   Access to British
2004)                            Columbia/YVR        N/A




                                      117
Germany
Date of agreement                     March 26,1973    Provisionally in force
                                      February 18,1975 Definitively in force
Characterization of Bilateral
Agreement                             Designation        Multiple Air Canada
                                                                  Air Transat
                                                                  Lufthansa
                                                                  Condor Flugdienst
                                                                  GmbH
                                                                  LTU Lufftransport
                                                                  Unternhmen GmbH

                                      Tariffs            Double disapproval

                                      Capacity          Free determination
Confidential Item(s)                  Routes and associated rights
                                     Access to British
Route Information (Operated in 2004) Columbia/YVR        Yes




                                            118
Poland

Date of Agreement                             April 5,2001         Ad referendum
Characterization of Bilateral
Agreement                                     Designation         Multiple     LOT Polish
                                                                               Air Transat
                                                                               Air Canada

                                              Tariffs              Dual disapproval

                                              Capacity             Pre-determination
Confidential Item(s)                          Routes and associated rights
                                                                       Access is limited to the
                                                                       following routes
                                                                        • Canada3-Frankfurt-
                                                                           Warsaw
                                                                        • Canada3-Frankfurt-
                                                                           Gdansk
                                                                        • Canada3-Frankfurt-
                                                                           Warsaw
                                                                        • Canada3-Frankfurt-
Route                                         Access to                    Poznan
Information(Operated                          British                   • Canada2-Frankfurt-
in 2004)                                      Columbia/YVR Yes.            Katowice




2
    Service from Vancouver was operated on a codeshare basis with Lufthansa.


                                                        119
Serbia

Date of Agreement                           December7,2006 Provisionally in force
Characterization of Bilateral Agreement Designation             Multiple          Air Canada
                                                                                  Skyservice

                                            Tariffs             Double disapproval

                                            Capacity            Pre-determination
Confidential Item(s)                        Routes and associated rights
                                            Access to British
Route Information (Operated in 2004)        Columbia/YVR        No

United Arab Emirates

Date of Agreement                 May 28,1999          Provisionally into force
                                  Aug22-Oct.3
                                  2002                 Entry into force
Characterization of Bilateral
Agreement                         Designation          Multiple      Air Canada
                                                                     Etihah Airways
                                                                     Emirates
                                                                     Airlines

                                  Tariffs              Double disapproval

                                  Capacity             Pre-determination

Route Information (Operated in    Access to British
2004)                             Columbia/YVR         No




                                            120
Vietnam

Date of Agreement                June 24,2003        Provisional application
Characterization of Bilateral
Agreement                        Designation         Multiple     Air Canada

                                 Tariffs             Double disapproval

                                 Capacity            Pre-determination
Confidential Item(s)             Routes and associated rights
Route Information (Operated in   Access to British
2004)                            Columbia/YVR        Yes




                                           121
                                  Appendix VIII

                       Restrictive Bilateral Agreements

Antigua

Date of Agreement                          August 19, 1949
Characterization of Bilateral Agreement    Designation                Air Canada
                                           Tariffs                    Single disapproval
                                           Capacity                   No unilateral action
                                           Access to British
Route Information(Operated in 2004)        Columbia/YVR               No

Argentina

Date of Agreement                          May 8, 1979         Applied provisionally
                                           February 6, 1987 Entered into force
Characterization of Bilateral Agreement    Designation         Single Air Canada
                                                                      Aerolineas Argentineas

                                           Tariffs             Single disapproval

                                           Capacity            Pre-determination
Confidential Item(s)                       Routes and associated rights
                                           Access to British
Rout e Information(Operated in 2004)       Columbia/YVR              No




                                          122
Australia

Date of Agreement                July 5,1988                  In Force
Characterization of Bilateral
Agreement                        Designation        Multiple Air Canada
                                                             Qantas and Harmony
                                                             Airways
                                                              Code-sharing service
                                 Tariffs                      Single disapproval
                                                              Pre-determination
                                 Capacity                     3000 seats/wk without
                                                              restrictions as to frequency or
                                                              aircraft type. No Capacity
                                                              limits on code-share service
Route                            Access to
Information(Operated             British
in 2004)                         Columbia/YVR                 Yes


Bahamas

                                                    Provisionally in force
Date of Agreement                 May 15,1986
                                                    Definitively in force
                                  July 26 ,1990
Characterization of Bilateral
Agreement                         Designation       Multiple Air Canada
                                                               Varig-Vaicao
                                                               Varing Logistica and TAM
                                                               Linhas Aereas S.A
                                     Tariffs                   Single disapproval
                                   Capacity                    Pre-determination
Route Information(Operated in   Access to British
2004)                           Columbia/YVR                   No




                                       123
Brazil

Date Of Agreement                May 15,1986                     Provincially in force
                                 July 26,1990                    Definitively in force
Characterization of Bilateral
Agreement                        Designation                     Multiple   Air Canada
                                                                            Varig-Vaicao
                                                                            Varing Logistica
                                                                            TAM Linhas
                                                                            Aereas S.A
                                 Tariffs                         Single Disapproval
                                 Capacity                        Pre-determination
Confidential Item(s)             Routes and associated rights
Route Information (Operated in
2004)                            Access to British               No
                                 Columbia/YVR



Bulgaria

                                              April
Date of Agreement                            12,1991       Ad referendum
Characterization of Bilateral
Agreement                                  Designation Multiple        Air Canada
                                                                       Balkan Bulgarian
                                                                       Airlines

                                           Tariffs         Single disapproval

                                           Capacity        Pre-determination
Confidential Item(s)                       Routes and associated rights
Route Information (Operated in             Access to British
2004)                                      Columbia/YVR        No




                                             124
China


Date of Agreement                       September 9,2005                   In force
Characterization of Bilateral
Agreement                               Designation               Multiple    Air Canada
                                                                              Cargojet
                                                                              Harmony
                                                                              Airways
                                                                              Air China
                                                                              Shanghai
                                                                              Airlines
                                                                              China Eastern

                                        Tariffs                   Single disapproval

                                        Capacity                  Pre-determination
Route Information                       Access to British
(Operated in 2004)                      Columbia/YVR              No


 Costa Rica

                                  November
 Date of Agreement                22,1996                     Ad referendum
 Characterization of Bilateral                        Multi
 Agreement                        Designation         ple     Air Canada
                                                              LACSA

                                  Tariffs             Single disapproval

                                  Capacity            Pre-determination
 Confidential Item(s)             Routes and associated rights
 Route Information (Operated in   Access to British
 2004)                            Columbia/YVR           No




                                            125
 The Czech Republic

 Date of Agreement                March 13,1996        Signed and in Force
 Characterization of Bilateral
 Agreement                        Designation          Multiple    Air Canada
                                                                   Czech Airlines
                                  Tariffs                          Single disapproval
                                  Capacity                         Pre-determination
 Route Information                Access to British
 (Operated in 2004)               Columbia/YVR         No



Denmark

                                 February
Date of Agreement                17,1989              Ad referendum
Characterization of Bilateral                         Multi
Agreement                        Designation          ple     Air Canada
                                                             SAS
                                 Tariffs                     Single disapproval
                                                             Pre-determination for
                                 Capacity                    own-equipment
Confidential Item(s)             Routes and associated rights
Route Information                Access to British
(Operated in 2004)               Columbia/YVR         No




                                            126
 Egypt

 Date of Agreement                         April 3,1987 Ad referendum
 Characterization of Bilateral Agreement Designation Multiple            Air Canada
                                                                         Egyptair and Egyptair Cargo

                                           Tariffs          Single disapproval

                                           Capacity         Pre-determination
 Confidential Item(s)                      Routes and associated rights
 Route Information (Operated in 2004)      Access to British Columbia/YVR        No




Dominican Republic
                                        June
Date of Agreement                       18,1986         Ad referendum
Characterization of Bilateral
Agreement                               Designation Multiple        Air Canada

                                        Tariffs        Zonal disapproval

                                        Capacity       No unilateral action
Confidential Item(s)                    Routes and associated rights
Route Information (Operated in          Access to British
1999)                                   Columbia/YVR           No




                                          127
El Salvador

Date of Agreement                            November 22,1996 Ad referendum
Characterization of Bilateral Agreement Designation               Multiple       Air Canada

                                             Tariffs              Single disapproval

                                             Capacity             Pre-determination
Confidential Item(s)                         Routes and associated rights
                                             Access to British
Route Information (Operated in 2004)         Columbia/YVR         Yes


Fiji

                                                           In force

Date of Agreement                  April 30,1974
Characterization of Bilateral
Agreement                          Designation             Multiple     Air Pacific
                                                                        Air Canada
                                                                        Harmony
                                                                        Airways(code-
                                                                        sharing service)

                                   Tariffs                 Single disapproval

                                   Capacity                Pre-determination
Confidential Item(s)               Routes and associated rights
Route Information                  Access to British
(Operated in 2004)                 Columbia/YVR            Yes




                                             128
Guatemala

Date of Agreement                November 22,1996         Ad referendum
Characterization of Bilateral
Agreement                        Designation              Multiple   Air Canada

                                 Tariffs                  Single disapproval

                                 Capacity                 Pre-determination
Confidential Item(s)             Routes and associated rights
Route Information (Operated      Access to British
in 2004)                         Columbia/YVR             Yes

Haiti

                                 October
Date of Agreement                12,1978
Characterization of Bilateral
Agreement                        Designation         Single          Air Canada

                                 Tariffs             Single disapproval

                                                     Pre-determination and no
                                 Capacity            unilateral action
Confidential Item(s)             Routes and associated rights
                                 Access to
Route Information (Operated in   British
2004)                            Columbia/YVR        No




                                           129
Hong Kong

Date of agreement                            June 24,1998        In force
Characterization of Bilateral
Agreement                                    Designation         Multiple    Air Canada
                                                                             Cathay Pacific

                                             Tariffs             Single disapproval

                                             Capacity         Pre-determination
Confidential Item(s)                         Routes and associated rights
Route Information (Operated in               Access to British
2004)                                        Columbia/YVR        Yes


Hungary

Date of Agreement        June 10,1999                   Entry into Force
Characterization of
Bilateral Agreement      Designation                    Multiple       Air Canada
                                                                       MalEV Hungarian
                                                                       Airlines
                         Tariffs                                       Single disapproval
                         Capacity                                      Pre-determination
Route Information        Access to British
(Operated in 2004)       Columbia/YVR                   Yes




                                             130
India

Date of agreement     August          In force
                      31,1982
Characterization of
Bilateral
Agreement                             Single by        Air Canada
                      Designation     route            Air India
                                                       Jet Airways
                                                       ( Jet Airways doesn't
                                                       hold a licence to operate
                                                       air service in Canada
                      Tariffs                          Single disapproval
                      Capacity                         Pre-determination
                                                       Canada and India
                                                       On Route 1-2100
                                                       seats/week
                                                       On Route 2-2
                                                       frequencies/week
                                                       The total number of one-
                                                       way fifth freedom
                                                       passengers carried
                                                       into and/or out of the
                                                       territory of the other
                                                       Contracting party
                                                       for services operated on
                                                       Route 1 of either Section
                                                       in any calendar
                                                       year shall not exceed
                                                       85,000 passengers or 50%
                                                       of seats operated
                                                       calculated annually,
                                                       which is greater, but in
                                                       any case shall not exceed
                                                       110,000 passenger s per
                                                       annum.
Route Information
(Operated in 2004)    Access to British Columbia/YVR   No




                                    131
Indonesia

                                           December
Date of agreement                          5,1995              Ad referendum
Characterization of Bilateral
Agreement                                  Designation         Multiple Air Canada
                                                                        Garuda

                                           Tariffs             Single Disapproval

                                           Capacity       Pre-determination
Confidential Item(s)                       Routes and associated rights
Route Information (Operated in             Access to British
2004)                                      Columbia/YVR          No

Ivory Coast

Date of Agreement    September 3, 1987 Ratified by Ivory Coast 04 April 1990
Characterization of
Bilateral Agreement Designation        Single by route         Air Canada
                                                               Ivoire Aero
                                                               Services (IAS)

                       Tariffs               Single disapproval

                       Capacity              Pre-determination
Route Information      Access to British
(Operated in 2004)     Columbia/YVR          No




                                           132
Jamaica

Date of Agreement                      October18,1985
Characterization of Bilateral
Agreement                              Designation      Multiple   Air Canada
                                                                   Sunwing Airlines
                                                                   Inc
                                                                   Westjet
                                                                   Skyservice and Air
                                                                   Janmaica

                                       Tariffs          Zonal disapproval

                                       Capacity         No unilateral action
                                       Access to
                                       British
Route Information (Operated in 2004)   Columbia/YVR     No




                                          133
Japan

Date of Agreement                                          January 12,1955
Characterization of Bilateral Agreement Designation          Multiple        Air Canada
                                                                             Japan
                                                                             Airlines
                                                                             All Nippon

                                                             Single
                                       Tariffs               disapproval

                                       Capacity              Pre-determination
Confidential Item(s)                   Routes and associated rights
                                       Access to British
Route Information (Operated in 2004)   Columbia/YVR              Yes

Mexico

Date of Agreement                      February 21,1964          Entry into force
                                                                 With limitations by city
Characterization of Bilateral Agreement Designation              pair
                                                                             Air Canada
                                                                 Canada      Air Transat
                                                                             Skyservice
                                                                             Sunwing
                                                                             Westjet
                                                                             Zoom
                                                                             HMY
                                                                             Airways
                                                                             Aerovias
                                                                 Mexico      Mexicana

                                       Tariffs                   Single disapproval

                                       Capacity                  Free determination
                                       Access to British
Route Information (Operated in 2004)   Columbia/YVR              Yes




                                           134
Morocco

Date of Agreement     February 14,1975     Provisionally into force
                      May 7,1986           Definitively in force
Characterization of
Bilateral Agreement   Designation          Single by route    Air Canada
                                                              Royal Air Maroc

                      Tariffs              Single disapproval

                      Capacity             Free determination
Route Information     Access to British
(Operated in 2004)    Columbia/YVR         No


Netherlands

Date of Agreement     February 1,1990      Entry into force
Characterization of                        Multiple with
Bilateral Agreement   Designation          limitations      Air Canada
                                                             Air Transat
                                                             KLM

                      Tariffs              Single disapproval

                      Capacity             Open capacity
Route Information     Access to British
(Operated in 2004)    Columbia/YVR         Yes




                                     135
Nicaragua

Date of Agreement                    November 22,1996           Ad referendum
Characterization of Bilateral                                             Air
Agreement                            Designation                Multiple Canada

                                     Tariffs                    Single disapproval

                                     Capacity                   Pre-determination
Confidential Item(s)                 Routes and associated rights
Route Information (Operated in       Access to British
2004)                                Columbia/YVR               No

Norway

                                 February
Date of Agreement                17,1989             Ad referendum
Characterization of Bilateral
Agreement                        Designation         Multiple          Air Canada
                                                                       SAS

                                 Tariffs             Single disapproval

                                                     Pre-determination for own-
                                 Capacity            equipment
Confidential Item(s)             Routes and associated rights
Route Information (Operated      Access to British
in 2004)                         Columbia/YVR        N/A




                                     136
Malaysia

Date of agreement                           January 18,1996
Characterization of Bilateral
Agreement                                   Designation         Multiple    Air Canada
                                                                            Malaysia
                                                                            Airlines

                                            Tariffs             Single Disapproval

                                            Capacity            Pre-determination
Route Information (Operated in              Access to British
2004)                                       Columbia/YVR        No




Pakistan

Date of Agreement       January 15,1996                Definitively in force
                                                       Confidential Memorandum of
                        May 23,1996                    Understanding
Characterization of
Bilateral Agreement     Designation                    Multiple       Air Canada
                                                                      Pakistan
                                                                      International Airlines

                        Tariffs                        Single disapproval

                                                       Pre-determination for own-
                        Capacity                       equipment
Route Information       Access to British
(Operated in 2004)      Columbia/YVR                   No




                                             137
Panama

Date of Agreement         May 7,1968                     Ad referendum
Characterization of
Bilateral Agreement       Designation                    Single         Air Canada
                          Tariffs                                       Single disapproval
                          Capacity                                      No unilateral action
Route Information         Access to British
(Operated in 2004)        Columbia/YVR                   N/A

Peru

Date of Agreement         February 18,1955               Entry into force
Characterization of
Bilateral Agreement       Designation                    Single by route     Air Canada
                                                                             Lan Peru

                          Tariffs                        Single disapproval

                          Capacity                       Free determination
Route Information         Access to British
(Operated in 2004)        Columbia/YVR                   No

Philippines

Date of agreement                             May 30,1997
                                              Designation         Multiple      Air Canada
Characterization of Bilateral                                                   Philippine
Agreement                                                                       Airlines
                                                                  Single disapproval
                                              Tariffs
                                              Capacity            Pre-determination:

                                                                  4 flights/week for own
                                                                  aircraft
Route Information (Operated in                Access to British
2004)                                         Columbia/YVR        Yes




                                              138
Romania

Date of              November
Agreement            9,1984         Entry into force
Characterization
of Bilateral
Agreement            Designation    Single             Air Canada
                                                       TAROM S.A

                     Tariffs        Single disapproval

                     Capacity       Pre-determination

                                    One flight/day for direct services operated by Air
                                    Canada between Canada and Bucharest of which
                                    two flights/week may be operated with own-
                                    aircraft.

                                    One flight/day for services operated by TAROM
                                    between Romania and Montreal of which two
                                    flights/week may be operated with own aircraft
                     Access to
Route Information    British
(Operated in 2004)   Columbia/YVR   Yes




                                          139
Russian Federation

Date of Agreement          March 9,2001              Entry into force
Characterization of
Bilateral Agreement        Designation               Multiple     Air Canada
                                                                  Skyservice
                                                                  Aeroflot
                                                                  Transaero

                           Tariffs                   Single disapproval

                           Capacity                  Pre-determination
Route Information          Access to British
(Operated in 2004)         Columbia/YVR              No

Saint Lucia

Date of Agreement                          January 6,1984
Characterization of Bilateral
Agreement                                  Designation          Multiple      Air Canada
                                                                              BWI
                                                                              A

                                           Tariffs              Single disapproval

                                           Capacity             No unilateral action
                                           Access to
                                           British
Route Information (Operated in 2004)       Columbia/YVR         No




                                               140
Saudi Arabia

                                 November14,1
Date of Agreement                990          Provisionally in force
                                 June 9,1991     Definitively in force
Characterization of Bilateral
Agreement                        Designation     Multiple   Air Canada

                                 Tariffs         Single disapproval

                                 Capacity        Pre-determination
                                 Access to
Route Information (Operated in   British
2004)                            Columbia/YVR    No




Singapore

                                 December
Date of Agreement                14,2007         Provisionally in force
Characterization of Bilateral
Agreement                        Designation     Multiple   Air Canada
                                                            Singapore Airlines
                                                            Jett8 Airlines
                                                            Cargo Private
                                                            Limited
                                                            Singapore Airlines
                                                            Cargo (Private)
                                                            Limited

                                 Tariffs         Single disapproval

                                 Capacity        Pre-determination
Confidential Item(s)             Routes and associated rights
                                 Access to
Route Information (Operated in   British
2004)                            Columbia/YVR    Yes




                                  141
South Korea

                                                     In force
Date of agreement                September 20,1989
Characterization of Bilateral
Agreement                        Designation         Dual       Air Canada
                                                                Korean Airlines
                                                                Asiana Airlines

                                 Tariffs             Single disapproval

                                 Capacity            Pre-determination
Confidential Item(s)             Routes and associated rights

Route Information (Operated in   Access to British
2004)                            Columbia/YVR        Yes

ST. Christopher and Nevis


Date of Agreement                October 18,1985
Characterization of Bilateral
Agreement                        Designation         Multiple    Air Canada
                                                                 BWIA

                                 Tariffs             Single disapproval

                                 Capacity            No unilateral action
Route Information (Operated in   Access to British
2004)                            Columbia/YVR        No




                                           142
Sweden

Date of Agreement                     February 17,1989      Ad referendum

Characterization of Bilateral
Agreement                             Designation           Multiple   Air Canada
                                                                       SAS

                                      Tariffs               Single disapproval

                                                            Pre-determination for own
                                      Capacity              equipment
Confidential Item(s)                  Routes and associated rights

Route Information (Operated in        Access to British
2004)                                 Columbia/YVR          N/A

Thailand

Date of agreement                June 30,1989         In force
Characterization of
Bilateral Agreement              Designation          Single by route        Air Canada
                                                      Dual for code share    Thai Airways
                                 Tariffs              Single disapproval
                                 Capacity             Pre-determination

                                                      Three flights/week using B747 or
                                                      equivalent aircraft

Route Information (Operated      Access to British
in 2004)                         Columbia/YVR         N/A




                                                143
Trinidad and Tobago

                                                           Ad referendum
Date of Agreement                         July 20,1988
Characterization of Bilateral Agreement   Designation      Multiple     Air Canada
                                                                        BWIA


                                                           Double disapproval on
                                                           Cargo
                                          Tariffs
                                                           Zonal disapproval

                                          Capacity         No unilateral action
Confidential Item(s)                      Routes and associate rights
                                          Access to British
Route Information (Operated in 2004)      Columbia/YVR No




                                          144
Ukraine

Date of Agreement     April 28, 1999            Entry into force
Characterization of
Bilateral Agreement   Designation               Multiple    Air Canada
                                                            Ukrainian-
                                                            Mediterranean Airlines
                                                            AeroSvit

                      Tariffs                   Single disapproval

                      Capacity                  Pre-determination
Route Information     Access to British
(Operated in 2004)    Columbia/YVR              No

Venezuela

Date of Agreement     June 26, 1990             Provisional application
Characterization of
Bilateral Agreement   Designation               Multiple    Air Canada
                                                            VIASA
                                                            Aeropostal
                                                            Avensa

                      Tariffs                   Single disapproval

                      Capacity                  Pre-determination
Route Information     Access to British
(Operated in 2004)    Columbia/YVR              No




                                          145
                                           Appendix IX

                Formulation of Competitive Equilibrium Outcomes
                        under Air Bilateral Liberalization


Our model computes the competitive equilibrium outcomes (airfares, passenger volumes, and
flight frequencies) for each carrier-route combinations for serving major airport pairs between
Canada and Asian countries.


Take the YVR-PEK market as an example. In addition to the direct services, passengers may
choose three alternative indirect routes with intermediate stops (such as NRT, SEA and ICN).
Therefore, there are 8 carrier-route combinations for the market. We consider these carrier-
route combinations as differentiated products.


To analyze the competition between airlines who provide differentiated services, we construct a
competition model similar to those used by Dixit (1979) and Singh and Vives (1984). In
particular, the inverse demand function of airline i is specified as


                           J
        η i = ai − bqi − k ∑ q j
(1)                        j ≠i                 i = 1..J



Where
        η i is the generalized price of airline i. Reflecting the fact that an airline’s price is more
sensitive to its own output change compared to its competitor’s, it is natural to require that


(2)     b>k


Such a demand specification corresponds to a representative consumer maximizing a quadratic
and strictly concave utility function of the followings:


                             J
                                    1 J           J   J        J
        U (q1 ,.., q J ) = ∑ ai qi − b∑ qi2 − k ∑∑ q i q j − ∑η i qi
(3)                        i =1     2 i =1      i =1 j ≠ i   i =1
                                                                     .




                                                  146
Such a specification is more restrictive than a fully flexible model in that it assumes the slopes of
the all airlines’ demand functions are the same. This restriction is imposed due to our data
limitation, which prevents us to calibrate too many parameters. Still, such a specification is more
general than the models utilized in most previous liberalization studies in that it considered

product differentiation and firm specific characteristics explicitly. The generalized price
                                                                                                 η i is the

sum of actual ticket price paid
                                          pi , plus the schedule delay cost γ / f i incurred by consumers.

Parameter γ is proportional to consumer’s value of time, while i is a carrier’s flight frequency.
                                                               f

Similar specification has been used by Richard (2002). For ease of notational expression, we
provide closed form solution in the following section for the case duopoly airlines, i.e. the

number of airlines J = 2 . The more general case with J > 2 can be solved similarly. Note when
J = 2 , we have


                      γ
        p1 = a1 −          − bq1 − kq 2
                      f1
(4)
                      γ
        p2 = a2 −          − kq1 − bq 2
                      f2


which can also be rewritten as:


                   1 ⎡      γ           γ                 ⎤
          q1 =          (a − )b − (a 2 − )k − p1b + p 2 k ⎥
                     2 ⎢ 1
                 b −k ⎣
                  2
                            f1          f2                ⎦
(5)

                    1        ⎡      γ          γ                  ⎤
          q2 =               ⎢(a 2 − )b − (a1 − )k − p 2 b + p1 k ⎥
                 b −k2
                  2
                             ⎣      f2         f1                 ⎦


Note market output Q (number of passengers) is the sum of each airline’s traffic volume
                                                                                                       qi ,

thus that Q = q1 + q 2 . Market price P is calculated as the weighed average of each airline’s

price, thus that P = ( p1 q1 + p 2 q 2 ) / Q . When both firms experience an identical price change
dp1 = dp 2 = dp , or an equivalent market price change of dP = dp , by equation (5) the total



                                                       147
                                                                            2
                                                     dQ = dq1 + dq 2 = −       dp
change in market output can be obtained as                                 b+k    , and therefore we
have


               dQ P    2 P
        εP =     ⋅ =−    ⋅
(6)            dP Q   b+k Q



Similarly, when the flight frequency of airline 1 and airline 2 both increase by df , the total

frequency increase is 2 × df , thus that


                              ∂q1 ∂q1         ∂q  ∂q       dQ
        dQ = dq1 + dq 2 = (      +     )df + ( 2 + 2 )df =    (2 ⋅ df )
(7)
                              ∂f1 ∂f 2        ∂f1 ∂f 2     df


With equation (5), it can be further derived that


       ∂q1   γbf1−2       ∂q1      γkf 2−2
           =                   =− 2
       ∂f1 (b 2 − k 2 ) , ∂f 2   (b − k 2 ) ,

(8)
       ∂q 2   γbf −2        ∂q 2     γkf −2
            = 2 2 2              =− 2 1 2
       ∂f 2 (b − k ) ,      ∂f1    (b − k )


With equations (7) and (8), it can be derived that


               dQ f γ ( f1−2 + f 2−2 ) f 1 + f 2
        εf =      ⋅ =                 ⋅
(9)            df Q     2(b + k )          Q


The model is calibrated with historical data under the following assumptions concerning the
                                                           ε
market price elasticity ε P and flight frequency elasticity f .

(10)    ε P = − 1 .5

        ε f = 0.3
(11)




                                                   148
These elasticity values are adopted from previous empirical studies as reviewed in Section 4.2
of the report.


To calibrate the model, we also need to solve for b and k. Parameter k measures the degree of

differentiation among the services provided by the firms. Let              k = t ⋅ b1 ( 0 < t < 1) , then if

t = 0 the firms’ services are not substitutes at all, while t = 1 indicates that the airlines produce

perfectly homogenous services. In our model, we assume that t = 0.8 , i.e., the airlines provide
close substitutes to each other.


The following data was collected to conduct the model calibration:


    o Historical traffic volume data for each airline in all the routes we studied up to year
      2006.
    o Historical flight frequency data for each airline in all the routes we studied up to year
      2006.
    o Average fare data for each carrier in all the routes we studied during 2008. These fares
      are used for constructing pre-liberalization fares.
    o Average load factors for each airline in each route.
    o Historical financial data for all carriers up to year 2006.

Note with historical fare and traffic volume data, variables
                                                                    ai , b , k , γ can be calculated by

solving equations (4), (6), (7), (8) and (11) jointly. Such a parameter set is used to solve for the
market equilibrium when the limits on flight frequency and capacity are removed. Note airline i
maximizes its profit


(12)    π i = Max( pi qi − wi qi − vi f i )
                 qi


In addition, we have


                qi    q
(13)    fi =         = i
               Z i Li S i


where usable seat per aircraft
                                    S i can be calculated with an airline’s average load factor Li and

average aircraft size
                         Z i . After liberalization, an airline sets its quantity to maximize profits. The

First Order Conditions (FOCs) are



                                                   149
          ∂π i                   v
(14)           = ai − kq j − w1 − i − 2bqi = 0
          ∂qi                    Si

Equilibrium results after liberalization can be obtained by solving all airlines’ FOCs jointly.


To solve the equilibrium results, we also need to calibrate the marginal cost for all routes.

Assuming a constant marginal cost, we set w1 = $48 (per passenger) for Air Canada, taking the
average for all 6 markets we considered. Other airlines’ per passenger costs are adjusted with
the competitiveness ratio per the study by Oum and Yu (1996)3.


We used Expedia to collect the lowest online air fares. Given the fact that all airlines use
revenue management system to increase their revenue, the average yields should be higher
than the lowest possible fares we collected. Therefore, we upscale all the fares by 15%, which
is used as an airline’s average yield.

As liberalization generally increases competition, airlines’ load factors are likely to fall4 in the
liberalized markets. We reviewed the market performance in the Seoul - San Francisco and
Seoul - Los Angeles markets under the US-Korea Open Skies, and noted that the average load
factor in these two liberalized markets is 79%.                     Assuming similar market outcomes would
happen, we set the expected load factor in all the liberalized markets at 80%. The only
exception is the Shanghai-Vancouver route, where China Eastern has persistently had
considerably lower load factors than its competitors. Consequently, we set China Eastern’s
post-liberalization load factor at 75% to reflect its arguably poor management.


With the record high oil price forcing airlines to change their operation and marketing practices,
it is important to examine the likely market outcomes if fuel price remains high in the long run. It
should be noted that some of the likely long term changes airlines may adapt, such as switching
to new type of aircraft and reconfiguring their network structure, are beyond the scope of our
current model. Nevertheless, we conduct additional simulations to examine the effects of fuel
price increase with following assumptions:


3
  Since virtually no one has studied the cost competitiveness of the Chinese airlines, the cost ratio for Thai Airways
is used as a proxy.
4
  It is noted that with the high fuel price, airlines are forced to increase their load factors by cutting capacity in their
efforts to save on fuel costs.


                                                            150
   (1) Airlines’ per flight cost increased by 30%. Per passenger cost, which accounts for a
          relatively smaller percentage of the total cost, remain constant since they are not directly
          fuel related. If fuel costs accounted for about 30% of an airline’s total cost in 2006, our
          simulation represents roughly the effects of doubling fuel price of its year 2006 level.
   (2) Airlines continue to use the same aircraft types. The equilibrium load factors of each
          airline however are increased by 5%.
   (3) All frequency and capacity limitation are removed. However, there are no new entrants
          in the routes.


Clearly there are two countervailing factors in effect: high fuel price brings strong incentive for
airlines to increase price and reduce frequency, while liberalization gives airlines incentive to
compete more aggressively. Our simulation results reflect the net effects of these two driving
forces.




                                                  151
                                                                            1/10/2008
                                   Appendix X


                        AIR TRANSPORT AGREEMENT

                                     BETWEEN

                            THE GOVERNMENT OF

                     THE UNITED STATES OF AMERICA

                                        AND

                            THE GOVERNMENT OF

                                      [country]

                                   _____________



The Government of the United States of America and the Government of [country]
(hereinafter, "the Parties");

Desiring to promote an international aviation system based on competition among
airlines in the marketplace with minimum government interference and regulation;

Desiring to make it possible for airlines to offer the traveling and shipping public a
variety of service options, and wishing to encourage individual airlines to develop
and implement innovative and competitive prices;

Desiring to facilitate the expansion of international air transport opportunities;

Desiring to ensure the highest degree of safety and security in international air
transport and reaffirming their grave concern about acts or threats against the
security of aircraft, which jeopardize the safety of persons or property, adversely
affect the operation of air transportation, and undermine public confidence in the
safety of civil aviation; and
                                          2

Being Parties to the Convention on International Civil Aviation, done at Chicago
December 7, 1944;

Have agreed as follows:


                                      Article 1

                                     Definitions

For the purposes of this Agreement, unless otherwise stated, the term:

1.    "Aeronautical authorities" means, in the case of the United States, the
Department of Transportation and in the case of [country], the [appropriate entity],
and any person or agency authorized to perform functions exercised by the
Department of Transportation or said [appropriate entity];

2.    "Agreement" means this Agreement and any amendments thereto;

3.   "Air transportation" means the public carriage by aircraft of passengers,
baggage, cargo, and mail, separately or in combination, scheduled or charter, for
remuneration or hire;

4.    “Airline of a Party” means an airline that is licensed by and has its principal
place of business in the territory of that Party;

5.   "Convention" means the Convention on International Civil Aviation, done at
Chicago December 7, 1944, and includes:

     a. any amendment that has entered into force under Article 94(a) of the
Convention and has been ratified by both Parties, and

      b. any Annex or any amendment thereto adopted under Article 90 of the
Convention, insofar as such Annex or amendment is at any given time effective for
both Parties;

6.   "Full cost" means the cost of providing service plus a reasonable charge for
administrative overhead;
                                           3


7.    "International air transportation" means air transportation that passes
through the airspace over the territory of more than one State;

8.     "Price" means any fare, rate, or charge for the carriage of passengers,
baggage, or cargo (excluding mail) in air transportation, including surface
transportation in connection with international air transportation, charged by
airlines, including their agents, and the conditions governing the availability of
such fare, rate, or charge;

9.    "Stop for non-traffic purposes" means a landing for any purpose other than
taking on or discharging passengers, baggage, cargo, or mail in air transportation;

10. "Territory" means the land areas, internal waters, and territorial sea under
the sovereignty of a Party; and

11. "User charge" means a charge imposed on airlines for the provision of
airport, airport environmental, air navigation, or aviation security facilities or
services including related services and facilities.


                                       Article 2

                                   Grant of Rights

1.     Each Party grants to the other Party the following rights for the conduct of
international air transportation by the airlines of the other Party:

      (a)    the right to fly across its territory without landing;

      (b)    the right to make stops in its territory for non-traffic purposes;

       (c) the right to perform international air transportation between points on
the following routes:

             (i)    for airlines of the United States, from points behind the United
                    States via the United States and intermediate points to any point
                                             4

                      or points in [country] and beyond; [and for all-cargo service,
                      between [country] and any point or points;]

               (ii)   for airlines of [country], from points behind [country] via
                      [country] and intermediate points to any point or points in the
                      United States and beyond; [and for all-cargo service, between
                      the United States and any point or points;] and

         (d)   the rights otherwise specified in this Agreement.

2.       Each airline of a Party may, on any or all flights and at its option:

         a.    operate flights in either or both directions;

         b.    combine different flight numbers within one aircraft operation;

       c.      serve behind, intermediate, and beyond points and points in the
territories of the Parties in any combination and in any order;

         d.    omit stops at any point or points;

         e.    transfer traffic from any of its aircraft to any of its other aircraft at any
point;

       f.      serve points behind any point in its territory with or without change of
aircraft or flight number and hold out and advertise such services to the public as
through services;

       g.     make stopovers at any points whether within or outside the territory of
either Party;

         h.    carry transit traffic through the other Party’s territory; and

      i.    combine traffic on the same aircraft regardless of where such traffic
originates;

without directional or geographic limitation and without loss of any right to carry
traffic otherwise permissible under this Agreement, provided that, [with the
                                           5

exception of all-cargo services,] the transportation is part of a service that serves a
point in the homeland of the airline.

3.     On any segment or segments of the routes above, any airline of a Party may
perform international air transportation without any limitation as to change, at any
point on the route, in type or number of aircraft operated, provided that, [with the
exception of all-cargo services,] in the outbound direction, the transportation
beyond such point is a continuation of the transportation from the homeland of the
airline and, in the inbound direction, the transportation to the homeland of the
airline is a continuation of the transportation from beyond such point.

4.     Nothing in this Article shall be deemed to confer on the airline or airlines of
one Party the rights to take on board, in the territory of the other Party, passengers,
baggage, cargo, or mail carried for compensation and destined for another point in
the territory of that other Party.

5.     Any airline of a Party performing charter international air transportation
originating in the territory of either Party, whether on a one-way or round-trip
basis, shall have the option of complying with the charter laws, regulations, and
rules either of its homeland or of the other Party. If a Party applies different rules,
regulations, terms, conditions, or limitations to one or more of its airlines, or to
airlines of different countries, each airline of the other Party shall be subject to the
least restrictive of such criteria. Nothing in this paragraph shall limit the rights of a
Party to require airlines of both Parties to adhere to requirements relating to the
protection of passenger funds and passenger cancellation and refund rights. Except
with respect to the consumer protection rules referred to in this paragraph, neither
Party shall require an airline of the other Party, in respect of the carriage of traffic
from the territory of that other Party or of a third country on a one-way or round-
trip basis, to submit more than a notice that it is complying with the applicable
laws, regulations, and rules referred to in this paragraph or of a waiver of these
laws, regulations, or rules granted by the applicable aeronautical authorities.


                                       Article 3

                                    Authorization
                                           6

Each Party, on receipt of applications from an airline of the other Party, in the form
and manner prescribed for operating authorizations and technical permissions,
shall grant appropriate authorizations and permissions with minimum procedural
delay, provided:

      a. substantial ownership and effective control of that airline are vested in the
other Party, nationals of that Party, or both;

      b. the airline is qualified to meet the conditions prescribed under the laws
and regulations normally applied to the operation of international air transportation
by the Party considering the application or applications; and

       c. the other Party is maintaining and administering the provisions set forth
in Article 6 (Safety) and Article 7 (Aviation Security).


                                      Article 4

                           Revocation of Authorization

1.    Either Party may revoke, suspend, limit, or impose conditions on the
operating authorizations or technical permissions of an airline where:

      a. that airline is not an airline of the other Party under Article 1(4);

       b. substantial ownership and effective control of that airline are not vested
in the other Party, the other Party's nationals, or both; or

       c. that airline has failed to comply with the laws and regulations referred to
in Article 5 (Application of Laws) of this Agreement.

2.    Unless immediate action is essential to prevent further noncompliance with
subparagraph 1c of this Article, the rights established by this Article shall be
exercised only after consultation with the other Party.

3.    This Article does not limit the rights of either Party to withhold, revoke,
suspend, limit, or impose conditions on the operating authorization or technical
                                            7

permission of an airline or airlines of the other Party in accordance with the
provisions of Article 6 (Safety) or Article 7 (Aviation Security).



                                       Article 5

                                 Application of Laws

1.    The laws and regulations of a Party relating to the admission to or departure
from its territory of aircraft engaged in international air navigation, or to the
operation and navigation of such aircraft while within its territory, shall be
complied with by such aircraft upon entering, when departing from, or while
within the territory of the first Party.

2.     While entering, within, or leaving the territory of one Party, its laws and
regulations relating to the admission to or departure from its territory of
passengers, crew or cargo on aircraft (including regulations relating to entry,
clearance, aviation security, immigration, passports, customs and quarantine or, in
the case of mail, postal regulations) shall be complied with by, or on behalf of,
such passengers, crew or cargo of the other Party's airlines.


                                       Article 6

                                         Safety

1.      Each Party shall recognize as valid, for the purpose of operating the air
transportation provided for in this Agreement, certificates of airworthiness,
certificates of competency, and licenses issued or validated by the other Party and
still in force, provided that the requirements for such certificates or licenses at least
equal the minimum standards that may be established pursuant to the Convention.
Each Party may, however, refuse to recognize as valid for the purpose of flight
above its own territory, certificates of competency and licenses granted to or
validated for its own nationals by the other Party.

2.    Either Party may request consultations concerning the safety standards
maintained by the other Party relating to aeronautical facilities, aircrews, aircraft,
                                           8

and operation of airlines of that other Party. If, following such consultations, one
Party finds that the other Party does not effectively maintain and administer safety
standards and requirements in these areas that at least equal the minimum
standards that may be established pursuant to the Convention, the other Party shall
be notified of such findings and the steps considered necessary to conform with
these minimum standards, and the other Party shall take appropriate corrective
action. Each Party reserves the right to withhold, revoke, suspend, limit, or impose
conditions on the operating authorization or technical permission of an airline or
airlines of the other Party in the event the other Party does not take such
appropriate corrective action within a reasonable time and to take immediate
action, prior to consultations, as to such airline or airlines if the other Party is not
maintaining and administering the aforementioned standards and immediate action
is essential to prevent further noncompliance.



                                       Article 7

                                  Aviation Security

1.     The Parties affirm that their obligation to each other to protect the security of
civil aviation against acts of unlawful interference forms an integral part of this
Agreement. Without limiting the generality of their rights and obligations under
international law, the Parties shall in particular act in conformity with the
provisions of the Convention on Offenses and Certain Other Acts Committed on
Board Aircraft, done at Tokyo September 14, 1963, the Convention for the
Suppression of Unlawful Seizure of Aircraft, done at The Hague December 16,
1970, the Convention for the Suppression of Unlawful Acts against the Safety of
Civil Aviation, done at Montreal September 23, 1971, and the Protocol for the
Suppression of Unlawful Acts of Violence at Airports Serving International Civil
Aviation, Supplementary to the Convention for the Suppression of Unlawful Acts
against the Safety of Civil Aviation, done at Montreal February 24, 1988.

2.     The Parties shall provide upon request all necessary assistance to each other
to prevent acts of unlawful seizure of civil aircraft and other unlawful acts against
the safety of such aircraft, of their passengers and crew, and of airports and air
navigation facilities, and to address any other threat to the security of civil air
navigation.
                                           9


3.     The Parties shall, in their mutual relations, act in conformity with the
aviation security standards and appropriate recommended practices established by
the International Civil Aviation Organization and designated as Annexes to the
Convention; they shall require that operators of aircraft of their registry, operators
of aircraft that have their principal place of business or permanent residence in
their territory, and the operators of airports in their territory act in conformity with
such aviation security provisions.

4.     Each Party agrees to observe the security provisions required by the other
Party for entry into, for departure from, and while within the territory of that other
Party and to take adequate measures to protect aircraft and to inspect passengers,
crew, and their baggage and carry-on items, as well as cargo and aircraft stores,
prior to and during boarding or loading. Each Party shall also give positive
consideration to any request from the other Party for special security measures to
meet a particular threat.

5.     When an incident or threat of an incident of unlawful seizure of aircraft or
other unlawful acts against the safety of passengers, crew, aircraft, airports or air
navigation facilities occurs, the Parties shall assist each other by facilitating
communications and other appropriate measures intended to terminate rapidly and
safely such incident or threat.

6.     When a Party has reasonable grounds to believe that the other Party has
departed from the aviation security provisions of this Article, the aeronautical
authorities of that Party may request immediate consultations with the aeronautical
authorities of the other Party. Failure to reach a satisfactory agreement within 15
days from the date of such request shall constitute grounds to withhold, revoke,
suspend, limit, or impose conditions on the operating authorization and technical
permissions of an airline or airlines of that Party. When required by an emergency,
a Party may take interim action prior to the expiry of 15 days.


                                       Article 8

                             Commercial Opportunities
                                          10

1.     The airlines of each Party shall have the right to establish offices in the
territory of the other Party for the promotion and sale of air transportation.

2.    The airlines of each Party shall be entitled, in accordance with the laws and
regulations of the other Party relating to entry, residence, and employment, to bring
in and maintain in the territory of the other Party managerial, sales, technical,
operational, and other specialist staff required for the provision of air
transportation.

3.      Each airline shall have the right to perform its own ground-handling in the
territory of the other Party ("self-handling") or, at the airline’s option, select among
competing agents for such services in whole or in part. The rights shall be subject
only to physical constraints resulting from considerations of airport safety. Where
such considerations preclude self-handling, ground services shall be available on
an equal basis to all airlines; charges shall be based on the costs of services
provided; and such services shall be comparable to the kind and quality of services
as if self-handling were possible.

4.     An airline of a Party may engage in the sale of air transportation in the
territory of the other Party directly and, at the airline's discretion, through its
agents, except as may be specifically provided by the charter regulations of the
country in which the charter originates that relate to the protection of passenger
funds, and passenger cancellation and refund rights. Each airline shall have the
right to sell such transportation, and any person shall be free to purchase such
transportation, in the currency of that territory or in freely convertible currencies.

5.     Each airline shall have the right to convert and remit to its country and,
except where inconsistent with generally applicable law or regulation, any other
country or countries of its choice, on demand, local revenues in excess of sums
locally disbursed. Conversion and remittance shall be permitted promptly without
restrictions or taxation in respect thereof at the rate of exchange applicable to
current transactions and remittance on the date the carrier makes the initial
application for remittance.

6.     The airlines of each Party shall be permitted to pay for local expenses,
including purchases of fuel, in the territory of the other Party in local currency. At
their discretion, the airlines of each Party may pay for such expenses in the
                                           11

territory of the other Party in freely convertible currencies according to local
currency regulation.

7.    In operating or holding out the authorized services under this Agreement,
any airline of one Party may enter into cooperative marketing arrangements such
as blocked-space, code-sharing, or leasing arrangements, with

      a) an airline or airlines of either Party;

      b) an airline or airlines of a third country; [and

      c) a surface transportation provider of any country;]

provided that all participants in such arrangements (i) hold the appropriate
authority and (ii) meet the requirements normally applied to such arrangements.

8.      Airlines and indirect providers of cargo transportation of both Parties shall
be permitted, without restriction, to employ in connection with international air
transportation any surface transportation for cargo to or from any points in the
territories of the Parties or in third countries, including to and from all airports with
customs facilities and to transport cargo in bond under applicable laws and
regulations. Such cargo, whether moving by surface or by air, shall have access to
airport customs processing and facilities. Airlines may elect to perform their own
surface transportation or to provide it through arrangements with other surface
carriers, including surface transportation operated by other airlines and indirect
providers of cargo air transportation. Such intermodal cargo services may be
offered at a single, through price for the air and surface transportation combined,
provided that shippers are not misled as to the facts concerning such transportation.


                                       Article 9

                            Customs Duties and Charges

1.    On arriving in the territory of one Party, aircraft operated in international air
transportation by the airlines of the other Party, their regular equipment, ground
equipment, fuel, lubricants, consumable technical supplies, spare parts (including
engines), aircraft stores (including but not limited to such items of food, beverages
                                           12

and liquor, tobacco, and other products destined for sale to or use by passengers in
limited quantities during flight), and other items intended for or used solely in
connection with the operation or servicing of aircraft engaged in international air
transportation shall be exempt, on the basis of reciprocity, from all import
restrictions, property taxes and capital levies, customs duties, excise taxes, and
similar fees and charges that are (a) imposed by the national authorities, and (b) not
based on the cost of services provided, provided that such equipment and supplies
remain on board the aircraft.

2.     There shall also be exempt, on the basis of reciprocity, from the taxes,
levies, duties, fees, and charges referred to in paragraph 1 of this Article, with the
exception of charges based on the cost of the service provided:

       a. aircraft stores introduced into or supplied in the territory of a Party and
taken on board, within reasonable limits, for use on outbound aircraft of an airline
of the other Party engaged in international air transportation, even when these
stores are to be used on a part of the journey performed over the territory of the
Party in which they are taken on board;

       b. ground equipment and spare parts (including engines) introduced into the
territory of a Party for the servicing, maintenance, or repair of aircraft of an airline
of the other Party used in international air transportation;

      c. fuel, lubricants, and consumable technical supplies introduced into or
supplied in the territory of a Party for use in an aircraft of an airline of the other
Party engaged in international air transportation, even when these supplies are to
be used on a part of the journey performed over the territory of the Party in which
they are taken on board; and

       d. promotional and advertising materials introduced into or supplied in the
territory of one Party and taken on board, within reasonable limits, for use on
outbound aircraft of an airline of the other Party engaged in international air
transportation, even when these materials are to be used on a part of the journey
performed over the territory of the Party in which they are taken on board.

3.    Equipment and supplies referred to in paragraphs 1 and 2 of this Article may
be required to be kept under the supervision or control of the appropriate
authorities.
                                           13


4.     The exemptions provided by this Article shall also be available where the
airlines of one Party have contracted with another airline, which similarly enjoys
such exemptions from the other Party, for the loan or transfer in the territory of the
other Party of the items specified in paragraphs 1 and 2 of this Article.

                                       Article 10

                                     User Charges

1.     User charges that may be imposed by the competent charging authorities or
bodies of each Party on the airlines of the other Party shall be just, reasonable, not
unjustly discriminatory, and equitably apportioned among categories of users. In
any event, any such user charges shall be assessed on the airlines of the other Party
on terms not less favorable than the most favorable terms available to any other
airline at the time the charges are assessed.

2.     User charges imposed on the airlines of the other Party may reflect, but shall
not exceed, the full cost to the competent charging authorities or bodies of
providing the appropriate airport, airport environmental, air navigation, and
aviation security facilities and services at the airport or within the airport system.
Such charges may include a reasonable return on assets, after depreciation.
Facilities and services for which charges are made shall be provided on an efficient
and economic basis.

3.    Each Party shall encourage consultations between the competent charging
authorities or bodies in its territory and the airlines using the services and facilities,
and shall encourage the competent charging authorities or bodies and the airlines to
exchange such information as may be necessary to permit an accurate review of the
reasonableness of the charges in accordance with the principles of paragraphs 1
and 2 of this Article. Each Party shall encourage the competent charging
authorities to provide users with reasonable notice of any proposal for changes in
user charges to enable users to express their views before changes are made.

4.     Neither Party shall be held, in dispute resolution procedures pursuant to
Article 14, to be in breach of a provision of this Article, unless (a) it fails to
undertake a review of the charge or practice that is the subject of complaint by the
other Party within a reasonable amount of time; or (b) following such a review it
                                          14

fails to take all steps within its power to remedy any charge or practice that is
inconsistent with this Article.


                                      Article 11

                                  Fair Competition

1.     Each Party shall allow a fair and equal opportunity for the airlines of both
Parties to compete in providing the international air transportation governed by this
Agreement.

2.     Each Party shall allow each airline to determine the frequency and capacity
of the international air transportation it offers based upon commercial
considerations in the marketplace. Consistent with this right, neither Party shall
unilaterally limit the volume of traffic, frequency, or regularity of service, or the
aircraft type or types operated by the airlines of the other Party, except as may be
required for customs, technical, operational, or environmental reasons under
uniform conditions consistent with Article 15 of the Convention.

3.    Neither Party shall impose on the other Party's airlines a first-refusal
requirement, uplift ratio, no-objection fee, or any other requirement with respect to
capacity, frequency, or traffic that would be inconsistent with the purposes of this
Agreement.

4.     Neither Party shall require the filing of schedules, programs for charter
flights, or operational plans by airlines of the other Party for approval, except as
may be required on a non-discriminatory basis to enforce the uniform conditions
foreseen by paragraph 2 of this Article or as may be specifically authorized in this
Agreement. If a Party requires filings for information purposes, it shall minimize
the administrative burdens of filing requirements and procedures on air
transportation intermediaries and on airlines of the other Party.


                                      Article 12

                                       Pricing
                                          15

1.     Each Party shall allow prices for air transportation to be established by
airlines of both Parties based upon commercial considerations in the marketplace.

2.     Prices for international air transportation between the territories of the
Parties shall not be required to be filed. Notwithstanding the foregoing, the airlines
of the Parties shall provide immediate access, on request, to information on
historical, existing, and proposed prices to the aeronautical authorities of the
Parties in a manner and format acceptable to those aeronautical authorities.



                                      Article 13

                                    Consultations

Either Party may, at any time, request consultations relating to this Agreement.
Such consultations shall begin at the earliest possible date, but not later than 60
days from the date the other Party receives the request unless otherwise agreed.


                                      Article 14

                               Settlement of Disputes

1.     Any dispute arising under this Agreement, except those that may arise under
Article 12 (Pricing), that is not resolved within 30 days of the date established for
consultations pursuant to a request for consultations under Article 13 may be
referred, by agreement of the Parties, for decision to some person or body. If the
Parties do not so agree, either Party may give written notice to the other Party
through diplomatic channels that it is requesting that the dispute be submitted to
arbitration.

2.    Arbitration shall be by a tribunal of three arbitrators to be constituted as
follows:

       a. Within 30 days after the receipt of a request for arbitration, each Party
shall name one arbitrator. Within 60 days after these two arbitrators have been
                                           16

named, they shall by agreement appoint a third arbitrator, who shall act as
President of the arbitral tribunal;

      b. If either Party fails to name an arbitrator, or if the third arbitrator is not
appointed, in accordance with subparagraph a of this paragraph, either Party may
request the President of the Council of the International Civil Aviation
Organization to appoint the necessary arbitrator or arbitrators within 30 days. If
the President of the Council is of the same nationality as one of the Parties, the
most senior Vice President who is not disqualified on that ground shall make the
appointment.

3.    The arbitral tribunal shall be entitled to decide the extent of its jurisdiction
under this Agreement and, except as otherwise agreed, shall establish its own
procedural rules. The tribunal, once formed, may at the request of either Party
recommend interim relief measures pending its final determination. If either of
the Parties requests it or the tribunal deems it appropriate, a conference to
determine the precise issues to be arbitrated and the specific procedures to be
followed shall be held not later than 15 days after the tribunal is fully constituted.

4.     Except as otherwise agreed or as directed by the tribunal, the statement of
claim shall be submitted within 45 days of the time the tribunal is fully constituted,
and the statement of defense shall be submitted 60 days thereafter. Any reply by
the claimant shall be submitted within 30 days of the submission of the statement
of defense. Any reply by the respondent shall be submitted within 30 days
thereafter. If either Party requests it or the tribunal deems it appropriate, the
tribunal shall hold a hearing within 45 days after the last pleading is due.

5.   The tribunal shall attempt to render a written decision within 30 days after
completion of the hearing or, if no hearing is held, after the last pleading is
submitted. The decision of the majority of the tribunal shall prevail.

6.    The Parties may submit requests for interpretation of the decision within 15
days after it is rendered and any interpretation given shall be issued within 15 days
of such request.

7.     Each Party shall, to the degree consistent with its national law, give full
effect to any decision or award of the arbitral tribunal.
                                          17

8.     The expenses of the arbitral tribunal, including the fees and expenses of the
arbitrators, shall be shared equally by the Parties. Any expenses incurred by the
President of the Council of the International Civil Aviation Organization in
connection with the procedures of paragraph 2b of this Article shall be considered
to be part of the expenses of the arbitral tribunal.


                                     Article 15

                                    Termination

Either Party may, at any time, give notice in writing to the other Party of its
decision to terminate this Agreement. Such notice shall be sent simultaneously to
the International Civil Aviation Organization. This Agreement shall terminate at
midnight (at the place of receipt of the notice to the other Party) at the end of the
International Air Transport Association (IATA) traffic season in effect one year
following the date of written notification of termination, unless the notice is
withdrawn by agreement of the Parties before the end of this period.


                                     Article 16

                              Registration with ICAO

This Agreement and all amendments thereto shall be registered with the
International Civil Aviation Organization.
                                         18



                                     Article 17

                                 Entry into Force

This Agreement shall enter into force on the date of signature.

Upon entry into force, this Agreement shall supersede [specify].


IN WITNESS WHEREOF the undersigned, being duly authorized by their
respective Governments, have signed this Agreement.

DONE at _____________, this _______day of ________, 20__, in two originals,
in the English and ___________ languages, both texts being equally authentic.




FOR THE GOVERNMENT OF THE                         FOR THE GOVERNMENT
UNITED STATES OF AMERICA:                         OF [country]:

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:2
posted:10/2/2012
language:English
pages:75